A 1985 law provides special tax treatment for Fingerhut, a mail-order company that Petters, a former Wayzata businessman who was convicted in 2009 of running a $3.5 billion Ponzi scheme, and a partner bought in 2002.

Of course, Petters, who is serving a 50-year prison sentence, no longer owns any part of Fingerhut, and a state Revenue Department report shows no one else is taking advantage of that tax break.

But the fact that it’s still state law points to a problem with the way Minnesota provides preferential treatment to certain taxpayers.

State policymakers rarely scrutinize special tax credits, exemptions and deductions to see if they still achieve the goals for which they were created, three tax experts told the Senate Tax Committee on Wednesday. As a result, many tax breaks that have outlived their usefulness remain in effect.

Those tax preferences make the state’s budget deficit worse and mean higher tax rates for everyone, according to a Revenue Department report the three experts helped write.

The report concluded those tax breaks are “simply spending by another name.”

Senate Tax Committee Chairwoman Julianne Ortman, R-Chanhassen, agreed with that conclusion and said she would consider eliminating some tax breaks to help erase a projected $6.2 billion shortfall in the state budget.

She may run into opposition from fellow Republicans who consider scrapping a tax break the same as a tax increase.

The Fingerhut break apparently was “very narrowly written” so it would apply to only one company, John Spry, an associate professor of finance at the University of St. Thomas, said before he testified at the committee hearing.

“I’m not sure politically how many people would want to go out on a limb for one of the Petters’ companies today and sponsor this provision,” Spry said.

“It raises the question: To what extent should the tax code be designed to help out one company at the expense of everybody else?” he asked.

At a minimum, he said, the Fingerhut example points to the need to review the 296 “tax expenditures,” as the tax breaks are known, that the Revenue Department has identified.

Those tax breaks are expensive. Jenny Wahl, a Carleton College economics professor, told the committee sales tax exceptions exceed the total amount raised by that tax, and income tax breaks are more than half as large as the revenue that tax generates.

Moreover, Wahl said, the tax breaks “often have no stated purpose” and fail to disclose who’s benefiting from special treatment.

But many of those breaks, such as deductions for mortgage interest and charitable donations, are popular and would be difficult to change politically.

The governor and Legislature extensively review the direct spending they approve every two years. They should apply the same scrutiny to tax breaks, said Jay Kiedrowski, a senior fellow at the University of Minnesota’s Humphrey Institute of Public Affairs and former state finance commissioner.

Tax breaks should be part of the state budget process so policymakers decide whether to extend, repeal, modify or replace them, Kiedrowski said.

The “Tax Expenditure Review Report” the three experts helped draft calls for creating a commission of experts to review tax breaks. It said the reviews would give state policymakers and the public the information they need to assess the worth of tax preferences.

The report also recommended “sunsetting” tax breaks so the governor and Legislature would have to act to extend or let them expire after 10 years.

The Revenue Department didn’t provide a “hit list” of tax breaks that should be purged. That would be up to the commission.

Bills creating a tax break review commission have been introduced in the House and Senate. The Senate Taxes Committee briefly reviewed a bill sponsored by Sen. Roger Reinert, DFL-Duluth, before referring it to another panel for more thorough deliberation.

THEM’S THE BREAKS

Did you know Minnesota provides a tax break on the purchase of a casket? Some of the other 295 breaks allowed under state law:

Bill Salisbury has been a newspaper reporter since 1971. He started covering the Minnesota Capitol for the Rochester Post-Bulletin in 1975, joined the Pioneer Press as a general assignment reporter in 1977 and was assigned to the Capitol bureau in 1978. He was the paper's Washington correspondent from 1994 through 1999, when he returned to the Capitol bureau. Although he retired in January 2015, he continues to work at the Capitol part time.

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